July, 2017

30

One of the oldest, largest, and most consistently operating Bitcoin exchanges is in the news for all the wrong reasons.

BTC-e, which is believed to be run out of Eastern Europe somewhere although they are very secretive in their operations, had some blockbuster mainstream style news yesterday and the site has been down for ‘unscheduled maintenance’ for almost 24 hours. Their twitter feed, @btcecom, says they expect to be down for 5-10 days.

Before getting into this, Magnr clients, your BTC are safe as the 3 exchanges we use are itBit, Bitstamp and Bitfinex.

BTC-e is in USD terms the 15th largest exchange in daily trading volume, from our friends at CoinMarketCap.

Coindesk has been all over the coverage. Alexander Vinnik is believed to be part of BTC-e and involved in a huge money laundering scheme of up to $4 billion. Vinnik was arrested in Greece late Monday.

The exchange and Vinnik are part of a 21 count indictment from the US Dept of Justice and are being fined $110 million, per some of the Coindesk coverage. The fine is related to the money laundering charge and evidence gathered that some of the funds from the Mt. Gox theft were received by Vinnik and traded through BTC-e.

The US Government issued the fine and has pledged a ‘crackdown on unregulated exchanges’. Although Bitcoin is transnational, this is something worth watching as so much Bitcoin is held and traded by Americans that anything restricting their access to BTC could move the markets. No one knows how many American accounts are at BTC-e or any other exchange the US Government considers to be unregulated.

The Network of Wallets

Some people think BTC is anonymous, and those people would be wrong. Many people call it pseudonymous, meaning it can be tough to track but nowhere near impossible to do so. After all, there is some code and cryptography in every Bitcoin.

The Coindesk stories and Government interest come from a ‘network of wallets’ known to be associated with money laundering. This network of wallets is also attached to numerous older exchange hacks so it’s believed that these exchanges were hacked with some coins stolen and then this network of wallets laundered it through various exchanges to make it tougher to find the money and the perpetrators. One of the primary exchanges for that laundering is BTC-e says the Feds.

It’s important to note that neither BTC-e nor Vinnik are attached to the thefts and hacks of coins but specifically to the crime of money laundering. Some of you that also trade on BTC-e would want to know that thefts and hacks haven’t happened to them or that they were involved in the theft and hacking of other exchanges.

Long Term Effects?

We don’t use BTC-e here at Magnr and some of you do and some don’t. It is tough to measure what the potential long term effects of this could be. First, the story itself isn’t finished yet. Second, BTC-e could survive and just go on business as usual, survive in some other way, or get shut down.

One thing to be sure of is that exchanges are incredibly important. They provide the on ramps and off ramps between fiat currencies and Bitcoin. We need as many good quality exchanges around the world as we can get so the potential loss of one, especially one that has been so reliable for exchanging as BTC-e has, could be very damaging.